Question 1

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. What is the own-price elasticity of demand?
A) -0.23.
B) -0.05.
C) -0.215.
D) -43.

Accepted Answer

A

Question 2

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?
A) Elastic demand => less revenue.
B) Elastic demand => more revenue.
C) Inelastic demand => less revenue.
D) None of the above.

Accepted Answer

If the demand for cigarettes is elastic, a 10% tax increase would lead to a significant decrease in quantity demanded, resulting in less tax revenue.

Question 3

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.
A) Reduce by 8%.
B) Increase by 8%.
C) Increase by 2%.
D) Insufficient information to calculate.

Accepted Answer

The own-price elasticity of demand formula is percentage change in quantity demanded divided by percentage change in price. With an elasticity of -0.8, a 10% price increase leads to an 8% decrease in quantity demanded. However, the price increase more than offsets the decrease in quantity sold, leading to a net revenue increase of 2% (10% price increase - 8% decrease in quantity = 2% net increase in revenue).

Question 4

The own-price elasticity of the demand for water among urban residential users is -0.20 in summer and -0.06 in winter. Compare the elasticities by season.
A) The demand is inelastic in both seasons.
B) The demand is more elastic in the summer.
C) The demand is less elastic in the winter.
D) All of the above.

Accepted Answer

The own-price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good, with a negative value indicating that the quantity demanded decreases as the price increases. A value in absolute terms less than 1 indicates inelastic demand, meaning consumers are not very responsive to price changes. Since both -0.20 and -0.06 are less than 1 in absolute value, the demand is inelastic in both seasons (A). The demand is more elastic in summer than in winter because the absolute value of -0.20 is greater than -0.06 (B), which also implies that the demand is less elastic in winter (C). Therefore, all statements are correct.

Question 5

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.
A) Reduces the elasticity.
B) Increases the elasticity.
C) Does not affect the elasticity.
D) None of the above.

Accepted Answer

Offering Office 365 Education for free to students and educators can reduce the own-price elasticity of demand for Office 365 among these users once they graduate. This is because they become accustomed to using Microsoft's software suite during their education, potentially leading to a preference for these tools in their professional lives. As a result, they might be less sensitive to price changes and more likely to continue using Office 365 even if the price increases, thus reducing the elasticity.

Question 6

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Which bias in consumer thinking explains why ParkNShop did not price the rice at HK$108?
A) Sunk-cost fallacy.
B) Status quo bias.
C) Anchoring.
D) None of the above.

Accepted Answer

The price of HK$107.90 is likely set to take advantage of the anchoring effect, where consumers perceive prices just below a round number as significantly cheaper, even though the difference is minimal.

Question 7

Changes in the price of an item may affect the income elasticity of demand.

Accepted Answer

Changes in the price of an item can affect the income elasticity of demand because the income elasticity of demand measures the responsiveness of quantity demanded to changes in income, and changes in price can affect income.

Question 8

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?
A) Reduce by 0.71%.
B) Increase by 3.55%.
C) Increase by 5%.
D) None of the above.

Accepted Answer

The cross-price elasticity of demand indicates how the quantity demanded of one good responds to a change in the price of another good. A negative elasticity of -0.71 suggests that as the price of gasoline increases, the demand for gasoline-powered cars decreases. However, the options provided do not correctly calculate the impact based on the given elasticity and price change, hence none of the options accurately describe the effect on demand.

Question 9

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. The cross-price elasticity between the demand for wind power plants and the price of coal would be __________.
A) Positive.
B) Negative.
C) Zero.
D) Possibly any of the above.

Accepted Answer

The cross-price elasticity between the demand for wind power plants and the price of coal is positive because if the price of coal increases, it makes coal-fired power more expensive relative to wind power, potentially increasing the demand for wind power as a substitute.

Question 10

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?
A) Increase by 5%.
B) Increase by 1.3%.
C) Increase by 6.5%.
D) None of the above.

Accepted Answer

The advertising elasticity of demand is 1.3, which means for every 1% increase in advertising expenditure, demand increases by 1.3%. Therefore, a 5% increase in advertising expenditure would increase demand by 5% * 1.3 = 6.5%.

Question 11

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. Calculate the own-price elasticity of demand.

Accepted Answer

The answer of Americans consume 126 grams of sugar per...

Question 12

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?

Accepted Answer

The answer of The government is considering to levy a...

Question 13

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.

Accepted Answer

The answer of The own-price elasticity of the demand for...

Question 14

The own-price elasticity of the demand for water among urban residential users is
 -0.20 in summer and -0.06 in winter. Compare and explain the difference in elasticities by season.

Accepted Answer

The answer of The own-price elasticity of the demand for...

Question 15

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.

Accepted Answer

The answer of Microsoft offers Office 365 Education at no...

Question 16

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Use anchoring in consumer thinking to explain why ParkNShop did not price the rice at HK$108.

Accepted Answer

The answer of At the ParkNShop online store, the price...

Question 17

Changes in the price of an item may affect the income elasticity of demand.

Accepted Answer

The income elasticity of demand depends on any factor which affects the demand.

Question 18

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?

Accepted Answer

The answer of The cross-price elasticity of the demand for...

Question 19

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. Do you expect the cross-price elasticity between the demand for wind power plants and the price of coal to be positive or negative?

Accepted Answer

The answer of Electric power producers have a choice of...

Question 20

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?

Accepted Answer

The answer of Suppose that the advertising elasticity of the...

Quiz 3: Elasticity

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. What is the own-price elasticity of demand?

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.

The own-price elasticity of the demand for water among urban residential users is -0.20 in summer and -0.06 in winter. Compare the elasticities by season.

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Which bias in consumer thinking explains why ParkNShop did not price the rice at HK$108?

Changes in the price of an item may affect the income elasticity of demand.

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. The cross-price elasticity between the demand for wind power plants and the price of coal would be __________.

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?

Americans consume 126 grams of sugar per day. Suppose that a sugar tax raises the retail price of sugar from US$2.79 to US$3.39 per pound, and reduces consumption to 120 grams per day. Calculate the own-price elasticity of demand.

The government is considering to levy a 10% tax on the sale of cigarettes. How would the effect on tax revenue depend on whether the demand for cigarettes is elastic or inelastic?

The own-price elasticity of the demand for Luna's product is -0.8. Explain how a 10% price increase would affect the company's revenue.

The own-price elasticity of the demand for water among urban residential users is -0.20 in summer and -0.06 in winter. Compare and explain the difference in elasticities by season.

Microsoft offers Office 365 Education at no charge to educators and students at eligible institutions. Explain how this free service affects the own-price elasticity of demand for Office 365 when the students graduate.

At the ParkNShop online store, the price of 8kg pack of premium Thai fragrant rice is HK$107.90. Use anchoring in consumer thinking to explain why ParkNShop did not price the rice at HK$108.

Changes in the price of an item may affect the income elasticity of demand.

The cross-price elasticity of the demand for gasoline-powered cars with respect to the prices of gasoline is -0.71. Suppose that the price of gasoline increases from 2 to 2.10 euros per liter. How would that affect the demand for gasoline-powered cars?

Electric power producers have a choice of various fuels, including oil, natural gas, coal, and uranium, as well as solar and wind energy. Do you expect the cross-price elasticity between the demand for wind power plants and the price of coal to be positive or negative?

Suppose that the advertising elasticity of the demand for an entertainment channel is 1.3. If the producer raises advertising expenditure by 5%, how would that affect the demand?